Road to Recovery

A rehabilitated East-West corridor has a vital role as Azerbaijan develops a fledgling non-oil industrial base that was wrecked after markets vanished along with the disintegration of the former Soviet Union

Azerbaijan's oil boom underscores the contrast between Baku and the rest of the country. A new generation of grand hotels and buildings is springing up in the capital beside the palatial residences and civic structures built during the oil bonanza of a century ago.

Outside petroleum-rich Baku, however, the largely agrarian country is still struggling with the transition from the command system of the former Soviet Union to a market economy. It also continues to recover from the effects of the conflict with Armenia in the mid-1990s.

But the divide between capital and countryside is narrowing with the upgrading of a road that starts in Baku, on the Caspian Sea, and traverses the length of the country to Georgia— and Europe and the Middle East beyond. Firmer transport links and shorter travel times will help revive the agriculture and industrial sectors and spur regional growth.

Key sections of the 500 kilometer (km)East-West corridor are being rehabilitated under projects supported by ADB that will cover 127 km at a cost of $170 million. This is part of the larger ADB-backed Central Asia Regional Economic Cooperation program under which eight countries have agreed to spend $18.7 billion to modernize and expand six road and rail corridors that were once part of the Silk Road network between the People's Republic of China and Europe.

Even with the global downturn, oil accounts for over 90% of Azerbaijan's export earnings as state and western oil companies tap deepwater fields and pump oil by pipeline to Turkey. The government is keen to diversify and is allocating more oil revenues—expected to run to hundreds of billions of dollars in the coming years—for infrastructure, including roads. Half the country's roads are gravel based and 70% of them need repair.

Improving Product Quality Key

Close transport and trade ties with neighbors are critical as much of Azerbaijan's attraction lies in its being part of a regional bloc. "To multinational companies, we sell Azerbaijan as part of the Eurasia Business Platform that comprises nine countries," says a Baku-based trade analyst who represents international and local exporters.

An improved East-West corridor has a vital role as Azerbaijan develops a fledgling nonoil industrial base that was wrecked after markets vanished along with the disintegration of the Soviet Union.

"Much of the industrial strategy involves processing agricultural goods and accessing the highly competitive and quality-conscious European markets," says Emil Majidov, head of Azpromo, the government agency tasked with encouraging exports and investment.

Majidov is persuading small and medium-sized producers in the food-processing sector, for example, to come together to improve product quality as well as become more competitive in marketing and distribution.

"But it's not easy," he says. "Small companies don't like working with each other and distrust remains between the public and private sectors."

The road is also an ally as Azerbaijan seeks to resuscitate an agriculture sector that was stricken after the dismantling of collective farms when the Soviets left.

This is evident around Ganja, the country's second largest city 430 km west of Baku, where farmers are adjusting to new realities, says Arif Jahangirov, deputy director of the Ganja Regional Consulting Centre, a privately funded agency that advises farmers how to increase productivity.

Painful Transition

After independence, rural land was redistributed among villagers who received, on average, 1 hectare each, depending on the size of the family. The process "is very painful for people who had been only laborers to learn about farming, especially if they didn't have money to buy farm equipment," says Jahangirov. The government helped by providing tractors at affordable terms and subsidizing fertilizer.

But now, as Jahangirov is advising, farmers need to band together to achieve economies of scale if they want to revive exports of wheat or grapes to the Russian Federation, for example. So far, this notion is meeting resistance as memories of collective farming remain fresh.

At the village of Morul, 30 km north of Ganja, a former manager of a collective farm is showing the way forward. As well as raising crops and breeding cattle, Oruch Mammedov, 63, is selling seeds to other farmers. He revs up a recently purchased threshing machine that separates seeds from chaff. Now he plans to construct a market in a nearby town so that he and other farmers—who will be offered stalls at a discount—can hopefully negotiate better prices on a group basis. Better roads will help this enterprise, he says.

Typical of the small-scale farmer is middleaged Novruz Huseynov, who grows potatoes, onions, and pomegranates in his garden and other small lots in the village of Tovuz on the East-West Corridor, 40 km from the Georgian border.

Because of its soil and climate—and a tradition of wine making going back over a thousand years—Tovuz produces excellent grapes. But most villagers opt for smaller, individual enterprises such as cultivating fruits and vegetables and breeding cattle.

For the moment, Huseynov still bumps along a potholed, unpaved road to sell his produce across the Georgian border as far as the capital of Tibilisi, 100 km away. Last year, he and other villagers pooled their onions and trucked them. This year, he hopes to sell potatoes, lifting the straw in his barn to reveal an ample stock. So dependent are villagers on petty trade that, when the Georgian border closed recently, some trekked to Baku, 400 km in the opposite direction.

Just outside Tovuz, trucks are carrying earth to a section of the East-West corridor that is being leveled by a bulldozer. To Huseynov and other villagers, it is signal of better times to come.